Opinion
No. 2-911 / 02-0725.
Filed April 30, 2003.
Appeal from the Iowa District Court for Dubuque County, LAWRENCE FAUTSCH, Judge.
A publishing company appeals the district court's denial of injunctive relief. AFFIRMED.
James M. Heckmann of James M. Heckmann Law Offices, P.C., Dubuque, for appellant.
Douglas Henry of Fuerste, Carew, Coyle, Juergens Sudmeier, P.C., Dubuque, and Bruce Eads and Lawrence Rockwell, of Donahue Gallagher Woods, LLP., Oakland, California, for appellee.
Heard by SACKETT, C.J., and ZIMMER and VAITHESWARAN, JJ.
The district court dismissed a petition for injunctive relief, ruling that the party seeking this relief was required to arbitrate its claim. Finding no error, we affirm.
I. Background Facts and Proceedings
Kendall/Hunt Publishing Company (K/H) entered into a contract with Decision Development Corporation (DDC) to distribute educational software products. The contract contained an arbitration clause.
A little over a year after the parties signed the five-year contract, DDC notified K/H that, in its view, K/H had breached a provision obligating it to use its best efforts in marketing the products. DDC gave K/H sixty days to cure the claimed breach. After this period expired, DDC informed K/H that it was terminating the contract.
K/H sued. It sought a temporary restraining order "prohibiting [DDC] from (1) exercising any claim of right to terminate the aforesaid Agreement or Amendment, or Kendall/Hunt's rights in the products described therein, unless and until [DDC] has complied with arbitration provisions. . . . " DDC moved to dismiss the petition based on lack of personal jurisdiction and failure to state a claim. The district court granted the motion on the second ground. The court ruled 1) "the default and remedy provisions of the contract are self-executing. . . ." and 2) "the arbitration provision . . . requires that Plaintiff's claim be brought before an arbitrator and not the Court."
On appeal, K/H assails both of the court's reasons for dismissing the petition. We will focus only on the court's arbitrability rationale.
II. Effect of Arbitration Clause
Boiled down to its essentials, this case raises the question of whether K/H's challenge to DDC's termination decision falls within the scope of permissible injunctive relief or whether it is an arbitrable issue. This is a legal question resolved by interpretation or construction of the parties' contract. State v. State Police Officers Council, 525 N.W.2d 834, 836 (Iowa 1994). Therefore, our review is on error. Hartig Drug Co. v. Hartig, 602 N.W.2d 794, 797 (Iowa 1999).
K/H asserts it is not seeking to compel arbitration because the complaint is DDC's not its own. It apparently seeks to avoid the contract's venue provision that requires its own claims to be arbitrated in San Francisco. However, the nub of K/H's allegation is that DDC should have arbitrated the question of K/H's breach of contract.
In determining whether a claim is arbitrable, courts may not consider the merits of the underlying claim. State Police Officers Council, 525 N.W.2d at 836; accord Arkcom Digital Corp. v. Xerox Corp., 289 F.3d 536, 536 (8th Cir. 2002); Larry's United Super, Inc. v. Werries, 253 F.3d 1083, 1085-86 (8th Cir. 2001). Instead, the courts ask only: 1) whether there is a valid arbitration agreement and 2) whether the controversy alleged is embraced by that agreement. Lewis Cent. Educ. Ass'n v. Lewis Cent. Comm. Sch. Dist., 559 N.W.2d 19, 21 (Iowa 1997). Arbitrability is presumed unless one can say with positive assurance that the clause cannot be interpreted to cover the dispute. State Police Officers Council, 525 N.W.2d at 836; cf. Arkcom, 289 F.3d at 536(reviewing order compelling arbitration to determine existence of valid arbitration agreement and whether specific dispute falls within the substantive scope of the agreement).
We recognize that other courts have permitted the issuance of an injunction even if it requires a court to address the merits of the issue being considered in arbitration. See e.g., American Express Fin. Advisors Inc. v. Thorley, 147 F.3d 229, 231 (2d Cir. 1998); Roso-Lino Beverage Dist., Inc. v. Coca-Cola Bottling Co., 749 F.2d 124, 125 (2d Cir. 1984). However, our state's authority appears to parallel the Eighth Circuit's view.
With respect to the first question, the parties agree that their contract contains an arbitration clause. The clause mandates arbitration of all controversies or claims "arising out of or relating to this Agreement, or the breach thereof."
As for the second question, we are persuaded that K/H's complaint falls within the scope of the clause. It relates to DDC's termination of the contract, an issue clearly "arising out of relating to" the contract. Therefore, arbitration is mandatory.
Our conclusion is bolstered by language expressly limiting a party's ability to seek injunctive relief to two circumstances: 1) enforcement of an arbitration ruling and 2) misuse or disclosure of proprietary information. K/H does not allege either of these grounds.
Recognizing the breadth of the arbitration clause, K/H argues it is not seeking to litigate the merits of DDC's decision to terminate the contract but rather, is only trying to enjoin termination of the contract pending arbitration by DDC of the alleged breach. However, to enjoin DDC, a court would necessarily have to delve into the merits of DDC's termination decision and, consequently, K/H's claimed breach of the contract. These are precisely the types of issues that the contract delegates to an arbitrator. Cf. Manion v. Nagin, 255 F.3d 535, 539 (8th Cir. 2001) (noting that in order to issue injunctive relief, "court would have been required to determine that a breach occurred and to have made a determination on the merits of the underlying dispute, an issue for the arbitrator"); Merrill Lynch, Pierce, Fenner Smith, Inc. v. Hovey, 726 F.2d 1286, 1291 n. 10 (8th Cir. 1984) (stating the "evidentiary foray" necessary to determine whether an injunction is appropriate is "essentially the same" foray that would occur in the arbitration proceeding).
An affidavit supporting K/H's request bears this out.
A plain reading of the contract precludes a court from issuing the type of injunctive relief K/H requests. Therefore, the district court did not err in dismissing K/H's petition. In light of our resolution, we need not address the remaining issues raised by the parties.
III. Disposition
We affirm the district court's dismissal of K/H's petition.